Court not obliged to remit matters to arbitral tribunals

Court not obliged to remit matters to arbitral tribunals

In a Supreme Court judgment it was held that section 34(4) of the Arbitration and Conciliation Act, 1996 can be used to record reasons for findings already produced in an award, or to fill gaps in an award’s reasoning. The court also ruled that, without findings on an award’s contentious matters, no decision may be remitted to an arbitrator under the guise of new reasons and filling gaps in the reasoning.

In I-Pay Clearing Services Private Ltd v ICICI Bank Ltd, the appellant, I-Pay Clearing Services, entered into an arrangement with the respondent, ICICI Bank, to supply technology and handle the operations and processing of HPCL’s smart card-based loyalty programmes. I-Pay claimed it had incurred substantial losses because of the bank’s unexpected termination of the arrangement, which was the reason for a dispute between the parties. Consequently, the sole arbitrator passed an award in favour of I-Pay, directing the bank to pay INR500 million (USD6.4 million) plus interest at 18% per annum from the date of the award until payment, and expenses of INR50,000.

The bank challenged this before the Bombay High Court, where it asserted that the award was patently illegal since there was no finding that the bank had terminated the contract unlawfully and prematurely. However, the court found the flaw in the award could not be rectified, and dismissed the challenge to it.

Consequently, the matter went before the Supreme Court, which had to decide whether the case can be remanded to the arbitral tribunal under section 34(4) of the act, considering the facts of the case. The court gave great importance to the difference in the meaning of “findings” and “reasons”. While no finding was made in the matter, section 34(4) of the act was entirely immaterial. It was held that the courts had the authority to grant remission under section 34(4) only in circumstances where no reasoning was supplied for arriving at a finding, or to fill gaps in the award’s reasons.

The decision has definitely given an insight to what needs to be considered in an application under section 34(4) of the act. While the judgment has expounded on sections 31, 34(1), 34(2A) and 34(4) comprehensively, it has mainly established that there is no way to alter an award under section 34(4), which is seen by some as an order minimising judicial interference, and by others as a missed opportunity to give the courts more power to interpret awards and prevent delays in settlements.

The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at Readers should not act on the basis of this information without seeking professional legal advice.